Say on Pay Laws, Executive Compensation, Pay Slice, and Firm Value around the World

58 Pages Posted: 21 Sep 2013 Last revised: 2 Apr 2014

See all articles by Ricardo Correa

Ricardo Correa

Board of Governors of the Federal Reserve System

Ugur Lel

University of Georgia - Department of Banking and Finance

Multiple version iconThere are 3 versions of this paper

Date Written: March 2014

Abstract

Using a sample of about 90,000 observations from 38 countries over the 2001-2012 period, we provide three novel findings regarding say on pay (SoP) laws. First, we find robust evidence that SoP laws reduce CEO pay growth rates at firms. Second, such laws decrease the portion of total top management pay captured by CEOs. Firm values are higher following SoP laws in part because of this reduction in managerial pay inequality. Third, mandatory SoP laws only affect the CEO pay growth rates whereas advisory SoP laws influence various aspects of executive pay policies. These results are robust to instrumental variable estimation and nearest neighbor matching methods.

Keywords: Executive compensation, say on pay laws, regulations, pay structure, CEO pay slice, firm valuation, corporate governance

JEL Classification: G15, G34, G38, M12

Suggested Citation

Correa, Ricardo and Lel, Ugur, Say on Pay Laws, Executive Compensation, Pay Slice, and Firm Value around the World (March 2014). FRB International Finance Discussion Paper No. 1084. Available at SSRN: https://ssrn.com/abstract=2328678 or http://dx.doi.org/10.2139/ssrn.2328678

Ricardo Correa (Contact Author)

Board of Governors of the Federal Reserve System ( email )

20th Street and Constitution Avenue NW
Washington, DC 20551
United States

Ugur Lel

University of Georgia - Department of Banking and Finance ( email )

Terry College of Business
Athens, GA 30602-6253
United States

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